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Challenges and Opportunities for SME’s after the ASEAN Integration

Human Development Forum Foundation, June 5, 2015 - Human Development Forum Foundation (HDFF), in collaboration with The Asia Foundation, conducted the 2015-3 Chairman’s Circle on 26 May 2015 at the Aloft Hotel Bangkok under the theme of Challenges and Opportunities for SME’s after the ASEAN Integration. The opening remarks were delivered by the Chairman of HDFF, General (ret.) Bunchon Chawansin, and were followed by presentations from three distinguished panel speakers with extensive experience and expertise in academia and professional practice. The first speaker was Ms. Véronique Salze-Lozac’h, Senior Director, Economic Development and Chief Economist at The Asia Foundation. Mr. Matthieu Cognac, Youth Employment Specialist at International Labour Organization, was the second, and Dr. Suthikorn Kingkaew, Lecturer at Thammasat University, was the third speaker. The event was a half-day event moderated by HDFF Programme Officer, Mr. Adam Martin. The forum was attended by representatives of the foreign diplomatic, local academic, and regional private enterprise communities.

Highlights

In the first panel, Ms. Véronique Salze-Lozac’h discussed the potential effects of ASEAN integration on SME’s and hypothesized as to the roles of SME’s in this changing environment. The presentation showed decreasing trade between ASEAN and the US or EU, combined with increasing trade between ASEAN member countries in the past decade. Regional trade has become an important buffer against falling exports and vulnerability to global economic fluctuations. However, income inequalities and development disparities between each ASEAN country were identified as some of the major obstacles in creating fair competitive opportunities within the region. AEC was formed to provide integrated economic protection networks which also help SME’s to be able to expand their business in international trade by being subcontractors for domestic and foreign investors in the region. SME’s (or Micro, Small, and Medium Enterprises (MSME)’s) are a huge part of the economic system with high possibility to grow and support sustainable economic development. The current feeling among SME’s indicates significant concern as to the effect of AEC 2015 economic integration, as individual SME’s express doubts and fears as to what the change will bring for them. According to Ms. Salze-Lozac’h, in order to receive more attention and participation from them, governments need to take an active role in promoting understanding of AEC to and their application to domestic policies in order to help SME’s develop their capacity to compete in a regional market. She argued that governments should provide access to finance, resources, information about foreign regulations and standards, networks in both domestic and regional, and public-private partnership opportunities. Perhaps most importantly, Ms. Salze-Lozac’h recommended that voices from SME’s should to be taken into account when creating new policies.

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From left to right: Ms. Véronique Salze-Lozac’h, and Mr. Adam Martin

 

Mr. Matthieu Cognac started the second panel on the topic of youth unemployment in ASEAN. The unemployment rate, especially among the youth, can be a crucial factor which can generate conflict and crisis, as evidenced in the recent case of Arab Spring. More educated youths are entering into the labour market every year only to face difficulties in finding proper jobs for their degrees. Inequality in society and a gap between the rich and the poor had escalated the situation into demonstrations and civil unrest in several Arab states. In ASEAN, although there are approximately 7.6 million unemployed youth, the unemployment rate is lower than in the Middle East. Notably within ASEAN, employment for women has shown a positive shift with the unemployment rate for female workers showing a marked decline in recent years. ASEAN integration will create more opportunities for employment with its promise of the free flow of skilled labour and the transfer of knowledge and technology. Mr. Cognac suggested that even though there is a good start with a greater number of employees covered by legal pensions, ASEAN should concern itself more with social protection especially considering its susceptibility to natural disasters. As (M)SME’s account for a huge portion of the overall economy, local labourers will be crucial resources for transnational businesses. To fully benefit from the economic integration, challenges for labours such as income inequality and minimum wages, access to skill training- especially in agriculture, career guide, and an appropriate social protection, will need to be sufficiently addressed.

From left to right: Mr. Matthieu Cognac, and Mr. Adam Martin

 

Dr. Suthikorn Kingkaew, the final panel speaker, described how ASEAN integration has already begun in practice, yet gradual implementation of the complete integration plan will take time. He emphasized ASEAN integration as not only an economic one, but also political-security and socio-cultural pillar, which cannot be entirely distinguished from the economic one. ASEAN encompasses a huge amount of cultural diversity and to do business with other ASEAN countries or even across cultures within the country, obstacles, especially language must be overcome. The private sector can expand its business to a wider market on the regional level by providing other languages in their services or by opening local branches in other countries. Dr. Suthikorn noted that Thai SME’s may struggle as Thailand’s proficiency in English ranks last in ASEAN, and English is expected to become the de facto language of ASEAN. Additionally, logistical links between countries within ASEAN still lags behind what is needed for optimal conditions. Projects such as the “Asia Land Bridge”, the project of infrastructure constructions to connect each country with land transportation, are being implemented to address these issues with assistance from other regional partners such as ASEAN+6 (which consists of ASEAN and Australia, China, India, Japan, New Zealand, and South Korea) and the Greater Mekong Sub-region (Cambodia, China, Laos, Myanmar, Thailand, and Vietnam). Dr. Suthikorn also addressed major concerns among SME’s that they will not be able to compete with large corporations that already have a regional network, as well as greater resources. Dr. Suthikorn expresses his belief that SME’s will be able to survive, and in fact thrive, as large corporations will still rely on them as essential links in their supply chains. In concurring with Ms. Salze-Lozac’h, Dr. Suthikorn restated that differences in infrastructure, political instability, regulatory issues, corruption, cost of labour, etc., among various ASEAN nations will continue to be a major obstacle in the regions integration plan.

From left to right: Dr. Suthikorn Kingkaew, and Mr. Adam Martin

 

Policy Recommendations

The forum explored ways and means to better prepare ASEAN countries in dealing with both economic opportunities and challenges in the wake of ASEAN integration process. The suggested recommendations included:

  • ASEAN countries should emphasize positive impacts from the integration on daily life activities of general public to increase attention and participation from individuals and (M)SME’s;
  • ASEAN members should continuingly implement their promises especially on AEC to their domestic policies to reassure the strong will and capability of regional cooperation, as the integration has practically already begun;
  • ASEAN governments should provide accesses to information and connections to (M)SME’s (e.g. international partnership, public-private partnership) as sources for (M)SME’s to develop their capability to compete in regional market.
  • ASEAN members states should enforce stronger regulations on transparency to avoid unofficial fees especially cross-border trade.
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